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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

Direct Brands 2018Founders’ InsightsNEW YORK • OCTOBER 31, 2018

The Direct Brand Initiative Strategic Partners:

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

Direct Brand Economy, 2010 -Direct Brands create value through low-barrier, capital-flexible, leased or rented supply chains, with value extraction accomplished primarily through the direct relationships between the company and its end consumers.

Indirect Brand Economy, 1879 - 2010“Indirect Brands” are characterized by value-creation based on dominating O&O, high-barrier, capital-intensive supply chains with value extraction accomplished through a series of third-party handoffs (brand to publisher to retailer).

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

~50 CXOs• 1:1 interviews• Founder survey• CXO Roundtable

What are Direct Brands?How do they behave?How do they sell?

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

the survey remains open & we are sharing back results

www.iab.com/db/founders-survey

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What are Direct Brands?PART I:

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www.iab.com/db/founders-survey

• 97% of respondents list“category disruption” as their goal

direct brands are born to disrupt

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

www.iab.com/db/founders-survey

• <10% are using value pricing alone as a differentiator

• More than half say they’re positioning their products as premium brands

• 40% are straddling both

direct brands =value + premium

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direct brandsare in every aisle

• More than one-third of respondents are in health, wellness, & beauty

• 25%+ are in apparel, fashion, jewelry• 20%+ are in food & beverage• Nearly 40% of respondents selling

across multiple product categories

www.iab.com/db/founders-survey

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• Almost two-thirds of respondents identify “revenue growth” as a top 3 KPI

• Average gross margins are ~50% and EBITDA margins are <10%

• ~25% were profitable in 2017 and90%+ of respondents expect to be profitable by 2019

www.iab.com/db/founders-survey

direct brands are profitable

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direct brands are not tech-led, they’re marketing-led

• ~20% of founders worked in tech before founding their brand

• Almost 40% of founders say “innovation” is main success driver

• Founders say marketing is their most critical business function

• Valuations for respondents are ~4-5x revenue in-line with fast-growth CPG companies

www.iab.com/db/founders-survey

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PART II: How do Direct Brands behave?

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

fast is the new fashion… in every category

• Average time to launch first product was 7 months

• Today they can launch a product in4 months

• One-third of founders say their biggest mistake is moving too slowly to iterate the core product or change the portfolio”

www.iab.com/db/founders-survey

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

servicing customers is in their DNA

• 92% of respondents consider customer service a top 3 business-critical capability

• Every role is a customer service role• “Listening” to the customer re-defines

the brand’s identify

www.iab.com/db/founders-survey

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

• ~50% of direct brands say they hired the wrong people

finding talent is a challenge

www.iab.com/db/founders-survey

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PART III: How do Direct Brands sell?

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

selling products…not always subscriptions

• Approximately two-thirds of direct brands follow a “CPG” sales model

• Only one-third of respondents are seeking subscribers

www.iab.com/db/founders-survey

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

• Half or more use content marketing, editorial, PR, organic social to market

• 78% of respondents use email marketing for their products

• But only 22% deploy SEO

www.iab.com/db/founders-survey

this isn’t DR… it’s branDR

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

disruptor brands are DIY – or use disruptor agencies

• Almost 60% say they do not use agencies, but rather do all their marketing themselves

• Only 11% say all their marketing goes through agencies

www.iab.com/db/founders-survey

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

• ~50% of marketing spend goes to Facebook

• 40%+ have customer acquisition cost management as a top 3 KPI

• Respondents are testing ~3 other marketing channels

www.iab.com/db/founders-survey

we love Facebook…but it’s complicated

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• 100% of respondents say their owned web channel is core to their retail strategy

• Over 50% of direct brands are either selling goods in owned retail or plan to within 12 months

www.iab.com/db/founders-survey

e-commerce is dead…long live omnichannel

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

• Fewer than 20% of respondents consider Amazon a threat

• 31% are not selling on Amazon• 39% are selling on Amazon or

plan to within the year• 58% say CPG companies are

main competitors

www.iab.com/db/founders-survey

Amazon’s not a ‘frenemy’… it’s just another channel

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

Direct Brands Consumer Study (2019)Direct Brands Market Study (2019)Partners’ Direct Brands Days (2019)Direct Brands @ Cannes (2019)

IAB 250 2.0ALM 2019

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D I R E C T B R A N D S 2 0 1 8 | F O U N D E R S ’ I N S I G H T S

www.iab.com/db/founders-survey

we are keeping the survey open & sharing back results

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Thank You